We need more money, asap

CLXXXIII

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We are pretty desperate.

WeWork could run out of cash as soon as next month, significantly faster than originally thought, if it doesn’t figure out some way to raise more money. It reportedly has two financing options on the table. The first is a JPMorgan-led debt package that, per Bloomberg, would be “one of the riskiest junk-debt offerings in recent years”:

A roughly $5 billion financing package led by JPMorgan Chase & Co. is the company’s preferred option, rather than selling a controlling stake in itself to SoftBank Group Corp., according to people with knowledge of the matter. The structure and terms under discussion may change depending on investor appetite. Notably, the financing may include at least $2 billion of unsecured payment-in-kind notes with an unusually hefty 15% coupon, one person said. The deal may give the venture’s top private shareholders a final chance to avoid having their stakes severely diluted…

…JPMorgan’s bankers are discreetly sounding out investors and floating potential terms for the package of debt, which could help the unprofitable startup avoid running out of money as soon as next month. The financing relies on WeWork’s largest shareholder, SoftBank, following through with a plan outlined in a regulatory filing to contribute at least $1.5 billion in funding next year, according to one of the people, who asked not to be named discussing confidential talks.

So, yeah! Option One. Option Two is a SoftBank financing package that would give SoftBank control of the company, further strip Adam Neumann of voting power, and potentially push We’s valuation below $10 billion. Obviously it is not ideal but for SoftBank it also may not be… the worst outcome? Recall that SoftBank was in talks late last year to take a majority stake in WeWork with a planned $16 billion investment at a roughly $22 billion valuation and, I’d guess, far fewer concessions around voting power. SoftBank ultimately scrapped that plan over pushback from investors in what now looks like Masa Son’s best decision of the year. Now SoftBank is once again contemplating an effective buyout of WeWork but at a fraction of the price. A late-breaking Option Three is reportedly for SoftBank to provide around $5 billion in financing to WeWork through a mix of debt and equity, but not take a majority stake.

Oh also the phone booths:

WeWork, the cash-strapped office-sharing company, has a new problem that may prove costly. It has closed about 2,300 phone booths at some of its 223 sites in the United States and Canada after it says it discovered elevated levels of formaldehyde.

The company said in an email to its tenants on Monday that the chemical could pose a cancer-risk if there is long-term exposure.

That’s right, WeWork is literally a toxic asset. (Maybe it needs a spiritual cleanse?) The company could lay off at least 2,000 people, roughly 13% of staff, as soon as this week. WeGrow is closing, abandoning about a hundred children on their burgeoning quests to unleash superpowers. Despite cashing out at least $700 million of his own shares before it all blew up, Adam Neumann has lost his billionaire status. Employees are so mad at Adam they are making memes of him.

“The atmosphere is toxic,” says an anonymous worker, who presumably meant the corporate climate but may also have been speaking from a phone booth.

Walled gardens.

Lyft is tussling with Canadian trip-planning app Transit over access to its bike rental programs. Lyft last year bought Motivate, the operator of popular US urban bike-share programs including Citi Bike in New York, Ford GoBike in the Bay Area (now “Bay Wheels”), and Capital Bikeshare in Washington DC. Lyft, like Uber, harbors ambitions of becoming a one-stop transportation app and this year has integrated these Motivate bike-share offerings into the main Lyft app.

The problem is there are lots of other apps, like Transit, that are also interested in becoming the go-to trip-planner and that have deals with service providers to pull in data from their platforms. Unlike Lyft or Uber, these trip-planning apps are in theory more neutral arbiters of your trip options (walking, public transit, car, bike, scooter, etc.) since they tend not to have a stake in any of the modes themselves.

So it was not a great look when Lyft abruptly cut Transit’s access to Citi Bike data:

At the time of the acquisition, Motivate and Transit had signed an agreement to allow users of the Transit app to unlock Citi Bike bikes, but the Lyft acquisition stalled its implementation. Then, in May 2019, Lyft celebrated the integration of Citi Bike into its core app. This was a big deal: Since the app integration, Citi Bike set several ridership records.

Transit eventually concluded Lyft had no interest in announcing the integration the company had negotiated with Motivate, so the company decided to do so unilaterally. On September 9, Transit turned on the Citi Bike API integration, which allowed data to flow between Transit and Citi Bike in a way that enabled users to unlock bikes from within the Transit app. But within three days Lyft terminated the API, disabling the feature. According to a Lyft spokesman, Transit’s move was “a violation of the terms of our agreement with them.” Now commuters can purchase a Citi Bike trip only on the Lyft or Citi Bike apps.

This wasn’t the first time Lyft took a protectionist stance on its bike-share contracts. In June, it sued San Francisco after the city invited competitors to apply for permits to operate dockless bike-share programs. Lyft has argued to me that single-operator contracts are preferable to competitive bike-share markets, which it says can lead to race-to-the bottom prices and unsustainable businesses, citing companies like Ofo and Mobike. But it’s also worth asking whether a quasi-public good like bike-share should be operated exclusively by a single for-profit company. (“Instead of making bikeshare more interoperable, Lyft purchased Motivate to make bikeshare inoperable,” Transit declared last month.)

In July, a month after Lyft sued San Francisco, the company pulled its entire fleet of hot pink e-bikes there after some caught fire while in use. The e-bikes hadn’t been restored by late September, prompting San Francisco’s local transit authority to threaten to revoke Lyft’s e-bike permit over its failure to provide the service. (Threats, they go both ways!) The transit agency gave Lyft until Oct. 15—yesterday—to get at least half of its e-bike fleet back on the road. Lyft said in an email today that it didn’t meet the Oct. 15 deadline and that it is “doing everything we can to return ebikes to service for our riders, and at the same time having conversations with SFMTA about our continued long-term investment in bikeshare in San Francisco.”

Contingent liabilities.

Uber has a big problem in London. Actually, three.

The first is that it got only a two-month license extension from Transport for London, the local taxi operator.

The second is that the employment status of its UK drivers remains unresolved. A series of court rulings deemed them “workers,” a third category that exists in the UK with rights between those of an independent contractor and a regular employee. The latest decision finding those drivers workers who qualify for rights like minimum wage and paid time off came from the Court of Appeal in December 2018. Uber has appealed to the UK Supreme Court.

The third problem is that Uber could end up owing a very nasty tax bill. In the full accounts for Uber London Limited filed last week and spotted by Izabella Kaminska at FT Alphaville, Uber said in a note on “contingent liabilities” that it “is involved in an ongoing dialog with HMRC, which is seeking to classify the Uber Group as a transportation provider,” a change that would “result in a VAT (20%) on Gross Bookings or on the service fee that the Company charges Drivers, both retroactively and prospectively.” (HMRC, short for Her Majesty’s Revenue and Customs, is the UK department that handles most taxes, some benefits, and enforcement of the minimum wage, sort of like a sprawling IRS.)

The tax thing is a Big Deal. In many countries outside the US, Uber has kept rides cheap in part by skirting local taxes on goods and services. Uber avoids VAT in the UK by defining itself as a technology platform that facilitates exchanges between consumers and suppliers, rather than a direct provider of goods and services. That shifts responsibility for paying VAT to the suppliers (in Uber’s case, its drivers) who obviously generate much less revenue and often don’t meet the threshold for having to pay VAT at all. One estimate puts Uber’s unpaid VAT at over £1 billion. (“We can't comment on any discussions with HMRC but we will always fulfil the tax obligations in any country in which we operate,” Uber told FT Alphaville.)

Uber’s tax situation, in other words, is directly linked to the employment status of its drivers. If Uber drivers are found, definitively, to be workers and not contractors, then Uber would be an employer and its revenues likely subject to VAT. Uber said as much in its IPO filing: “Losing the [employment] case may lead the UK tax regulator (HMRC) to classify us as a transportation provider, requiring us to pay VAT (20%) on Gross Bookings both retroactively and prospectively.” Not to mention all the other headaches that classifying drivers as workers would cause it.

Short order.

DoorDash is getting into the shared/cloud/ghost kitchens business with a commissary in Redwood City, California:

The company's first DoorDash Kitchens location in Redwood City, Calif., provides cooking space for Nations Giant Hamburgers, Rooster & Rice, Humphry Slocombe, and The Halal Guys. The kitchen also allows the restaurants the ability to offer food delivery to seven Bay Area cities and, pickup to 13 cities.

…At DoorDash Kitchens, up to five restaurants 400 to 600 square-feet of kitchen space, plus shared storage room. DoorDash collects monthly rent from its tenant restaurants, while the restaurants expand without the overhead of opening their own kitchens. DoorDash handles the infrastructure, maintenance, marketing, and delivery from each its kitchens.

Shared/cloud/ghost kitchens—can we just call them rental kitchens?—are currently the hottest thing in food delivery. Deliveroo has them, Uber is experimenting with them, and ousted Uber co-founder Travis Kalanick is building his next act, CloudKitchens, around them. The basic idea is that rental kitchens help restaurants expand without launching a costly second new location, or allow them to experiment with hyper-specific delivery-only concepts, like a fast-casual restaurant that offers delivery-only specialty milkshakes. Tenants at DoorDash Kitchens will reportedly pay zero delivery fees through the end of this year.

This time last year.

Ok Silicon Valley, you can save the world now

Other stuff.

Silicon Valley wants to make a profit. Tech unicorn hangover gives Wall Street a headache. WeWork barrels ahead with new locations. FTC’s top antitrust official steps down amid tech probes. Revel raises $28 million for electric mopeds. Uber launches mopeds in Paris. Wheels raises $50 million for pedal-less e-bikes. SFMTA approves major bike lanes project. SF adds scooters. Uber starts boat taxis in Lagos. Goldman Sachs haunted by Uber, WeWork holdings. Uber Eats partners with Burger King. Uber buys Latin American grocery delivery service Cornershop. Walmart expands Cornershop deal in Canada. FreshDirect up for sale. Gig economy HR app raises $11 million. Deliveroo sets up worker-advisory panel. Uber diversity chief says it’s achieved pay equity. Airbnb investigating alleged racist host in Spain. Uber lays off 350 more employees. Los Angeles Airbnb hosts fear looming crack down. Rented.com partners with Hostfully. Instacart shoppers plan protest. Inpax lays off 700+ workers after losing Amazon contract. US transportation chairman warns Uber, Lyft against missing hearing. Play CEO with this FT game. Judgement comes for fintech unicorns. The ‘Glass Floor’ Is Keeping America’s Rich Idiots at the Top.


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